Gold News: Forget the Metal, It's Time to Buy the Miners
London (Dec 21) When you read the "gold news" it's filled with the often volatile ups and downs of the barbarous metal's price. Gold is, after all, a commodity. And since peaking in late 2011, the trend has mostly been down. But it's been even worse for gold miners, which have seen their shares fall even further. That could open an opportunity for investors seeking to add gold to their portfolio.
An interesting metal
Gold is a hard asset and is considered a safe haven when the market is stormy, often zigging when the broader market zags. That's partly because gold can be used as a form of currency, you know, when modern financial systems collapse and the zombies attack-- although if zombies attack I'm reaching for my shotgun, not gold. I understand why people like having a bit of gold in their portfolios. However, it doesn't pull itself out of the ground — miners like Barrick Gold Corporation (NYSE: ABX ) do that.
Gold Price in US Dollars Chart
Gold Price in US Dollars data by YCharts
Such miners have often been considered a proxy for owning gold because the shares tend to move when and how gold moves. It's not a perfect lock step, but the trends are generally the same direction. And given the option of owning a gold coin, which just kind of sits around collecting dust, owning gold stocks can at least leave you with some dividends for your trouble.
Now is a good time
Interestingly, now could be a good time to buy gold stocks. Not because the world is about to end-- to the disappointment of the zombies--but because the relationship between gold and gold stocks is unusual right now. While both have headed lower, gold stocks have gone down much more. The last time a disconnect like this took place was in the latter parts of the last decade. At that point, gold stocks had gotten ahead of gold. The resolve was a correction in gold stocks.
This time the relationship is reversed, gold stocks have underperformed. The resolve can come from gold falling or gold stocks rising. And, if gold goes up, gold stocks should follow along the same path, even if they don't catch up to the metal. So, with gold stocks so badly underperforming the metal, they look like a better bargain right now if you want some exposure to this safe haven.
More than just a shiny metal
All gold companies, however, aren't the same. For example Barrick is the world's largest gold miner. With a weakening gold price, Barrick has been focused on cutting costs. And it's done a great job. For example, it started the year projecting its costs to come in as high as $940 an ounce. During the year it lowered that to a high of $920 an ounce. Third quarter costs came in around $835 an ounce. That compares to the "all in sustaining cost" for 2013 of $915 an ounce.
Source: TheMotleyFool
